Beware the Bite: Higher TDS for Income Tax Return Non-filers (Section 206AB)

Filing your income tax return (ITR) on time is crucial, but sometimes it can slip our minds. But what if there were a financial consequence for forgetting? Well, Section 206AB of the Income Tax Act does just that!

What is Section 206AB?

This section applies to a category of taxpayers called "specified persons." In simple terms, if you haven't filed your ITR for the previous financial year and your total TDS (Tax Deducted at Source) and TCS (Tax Collected at Source) exceeded Rs. 50,000 in that year, you're classified as a specified person under Section 206AB.

The Consequence? Higher TDS!

The consequence of being a specified person is a higher rate of TDS being deducted on certain payments you receive. Here's what you can expect:

• 5% flat rate: A flat 5% of your income will be deducted as TDS at source, irrespective of the normal TDS rate applicable to that specific income type.
• Double the normal rate: The TDS rate will be doubled compared to the rate mentioned in the Income Tax Act or the Finance Act for that particular income type.

Important Note: Whichever rate is higher (5% or double the normal rate) will be applied for TDS deduction.

How to Avoid the Higher TDS Bite?

There are a few ways to avoid the higher TDS under Section 206AB:

• File your ITR!: This is the simplest solution. Ensure you file your ITR for the previous financial year on time to avoid being classified as a specified person.
• Exceed the Rs. 50,000 threshold: If your total TDS/TCS for the previous year was below Rs. 50,000, you won't be categorized as a specified person under Section 206AB, regardless of ITR filing status.

Relief for Certain Non-filers (Budget 2023 Update)

Thankfully, the Union Budget 2023 introduced a change to Section 206AB. Individuals who are not obligated to file an ITR for a particular year will not be considered specified persons under this section, even if their TDS/TCS exceeded Rs. 50,000. This is a welcome relief for those not required to file due to income not exceeding the ITR filing threshold.

Remember:

• Regularly check if you're required to file an ITR to avoid unnecessary complications.
• File your ITR on time to ensure you don't face a higher TDS burden.
• If you have any doubts or your situation is complex, consult a tax advisor for personalized guidance.

By staying informed and taking proactive steps, you can avoid the higher TDS bite of Section 206AB and ensure a smoother tax filing experience.

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